M/s. T.S.Mahalingam & Sons, CHENNAI v. Addl.CIT, CHENNAI

ITA 1645/CHNY/2010 | 2007-2008
Pronouncement Date: 28-01-2011 | Result: Allowed

Appeal Details

RSA Number 164521714 RSA 2010
Assessee PAN AABFK5125D
Bench Chennai
Appeal Number ITA 1645/CHNY/2010
Duration Of Justice 3 month(s) 23 day(s)
Appellant M/s. T.S.Mahalingam & Sons, CHENNAI
Respondent Addl.CIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 28-01-2011
Date Of Final Hearing 24-01-2011
Next Hearing Date 24-01-2011
Assessment Year 2007-2008
Appeal Filed On 05-10-2010
Judgment Text
IN THE INCOMETAX APPELLATE TRIBUNAL: B- BENCH:CHENN AI (BEFORE SHRI ABRAHAM P. GEORGE. ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN JUDICIAL MEM BER) ITA NO. 1645 / MDS/10 ASST. YEAR 2007-08 M/S. T.S.MAHALINGAM & SONS FINANCE DIVISION 13/240 ROYAPETTAH HIGH RD. CHENNAI-600014 PAN AABFK5125D VS. THE ADD. CIT BUSINESS RANGE IX CHENNAI (APPELLANT) (RESPONDENT) APPELLANT BY : RESPONDENT BY: SHRI V.S.JAYAKUMAR SHRI P.B.SEKARAN CIT(DR) ORDER PER SHRI ABRAHAM P.GEORGE A.M: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST A N ORDER DATED 07- 07-2010 OF THE CIT(A)-IX CHENNAI FOR THE IMPUGNED ASSESSMENT YEAR. GRIEVANCE OF THE ASSESSEE IS THAT THE INTEREST DISA LLOWANCE MADE BY AO ALLEGING DIVERSION OF FUNDS WAS NOT PROPER ON THE F ACTS AND THE LD. CIT(A) HAD CONFIRMED THE DISALLOWANCE DESPITE ASSESSEE SHO WING COMMERCIAL EXPEDIENCY FOR THE TRANSACTIONS. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE ENGAGED I N THE BUSINESS OF CAR FINANCING AS WELL AS BUYING AND SELLING OLD CAR S HAD FILED ITS RETURN OF INCOME SHOWING INCOME OF ` 1 29 84 320/- FOR THE IMPUGNED A.Y. DURING ITA NO. 1645/MDS /10 2 THE COURSE OF SCRUTINY ASSESSMENT IT WAS NOTED BY A O THAT IT HAD PAID INTEREST OF ` 43 15 612/- ON ITS OVERDRAFT ACCOUNT AND ` 3 90 210/- ON CERTAIN OTHER BORROWALS. AO ALSO NOTED THAT AS PER THE BALA NCE SHEET A SUM OF RS.91 64 751/- WAS DUE FROM ONE M/S T.S. MAHALINGAM & SONS ( M/S TSM FOR SHORT) AND SUM OF ` 18 38 845/- FROM M/S SB INDORE OPENING ( M/S SBI FOR SHORT). IT SEEMS ASSESSEE M/S G.S. MAHALINGAM & SONS FINANCE DIVISION AMD M/S T.S. MAHALINGAM & SONS ARE SEPARAT E ENTITIES. THOUGH ASSESSEE EXPLAINED THAT THE AMOUNTS GIVEN TO M/S TS M WAS SHORT TERM SHORT TERM TRANSFER OF FUNDS AO WAS NOT IMPRESSED. SO FAR AS THE AMOUNT DUE TO M/S SBI WAS CONCERNED ARGUMENT OF THE ASSES SEE WAS THAT THIS ACTUALLY CONSISTED OF OLD BALANCE. NEVERTHELESS FI NDING THE DETAILS GIVEN BY ASSESSEE TO BE NOT SUFFICIENT AO HELD THAT THERE WA S DIVERSION OF BORROWED FUNDS FOR PURPOSES OTHER THAN THE BUSINESS PURPOSES . HE THEREFORE MADE A DISALLOWANCE OF ` 9 76 422/- WHICH ACCORDING TO HIM WAS THE PRORATA INTEREST RELATABLE TO THE ABOVE FUNDS. 3. IN ITS APPEAL BEFORE THE CIT(A) ARGUMENT OF THE ASSESSEE WAS AS UNDER: M/S T.S.MAHALNGAM & SONS FINANCE DIVISION AS PART OF THEIR BUSINESS BUY AND SELL USED CAR AND UTILIZE THE SERVICES OF M/S T.S.M AHALINGAM & SONS TO SELL THEIR CARS ABY PAYING COMMISSION TO THEM. THE USED CARS K EPT FOR SALES ARE DISPLAYED IN THE YARDS OWNED BY M/S T.S. MAHALINGAM & SONS T ILL THEY ARE SOLD. THE MONEY ADVANCED ` 91 64 751/- BY THE ASSESSEE TO M/S T.S. MAHALINGAM & SONS WAS UTILIZED BY THEM TO THE EXTENT OF ` 10 00 000/- TO PURCHASE LAND TO CONSTRUCT SHED ON THE SAID LAND TO PARK THE VEHICLES. THE PAR KING YARDS BOTH AT 7 & 8 MASILAMANI ROAD AND 270 LLOYDS ROAD CHENNAI-6000 14 ARE USED BY THE ITA NO. 1645/MDS /10 3 ASSESSEE TO PARK AND DISPLAY THEIR CARS WITHOUT PAY ING RENT. ALSO THE ASSESSEE HAS FINANCED PART OF T.S. MAHALINGAM & SONS HOARDIN G COST WHICH HAS HELPED THE ASSESSEE IN SELLING THE CARS. HENCE THE AMOUNT ADVANCED TO M/S T.S. MAHALINGAM & SONS HAS HELPED THE ASSESSEE TO CONDUC T USED CAR BUSINESS AND EARN PROFITS OUT OF THE SAME. THE DETAILED LEDGER A /C OF T.S. MAHALINGAM & SONS IN THE BOOKS OF THE ASSESSEE AND LEDGER ACCOUNT OF THE LAND PURCHASED AND SHED CONSTRUCTED AS IN THE BOOKS OF T.S. MAHALINGAM & SO NS ARE ATTACHED HEREWITH. FOR FACILITATING SELLING OF ASSESSEES USED CARS T. S. MAHALINGAM & SONS HAS PAID A COMMISSION OF ` 8.07 LAKHS. ` 6.69 LAKHS ` 6.69 LAKHS AND ` 2.88 LAKHS FOR 2002-03 2003-304 2005-06 AND 2006-07 RESPECTI VELY. THIS SHOWS THAT ALMOST ALL USED CAR SALES OF THE ASSESSEE HAS BEEN DONE THROUGH T.S. MAHALINGAM & SONS ONLY AND THE ASSESSEE COMPANY HAS EARNED PROFIT ON SUCH TRADING TRANSACTION OF USED CARS. (OVERRIDING PROFI T OR SALE OF CARS BELONGING TO US GOES TO THE ASSESSEE COMPANY ONLY THERE BY IT EARNS INCOME). AS PER THE BOOKS OF THE ASSESSEE PARTNERS CURRENT ACCOUNT AS ON 31-3-2007 SHOWS A CREDIT BALANCE OF ` 1 22 14 553/- WHEREAS THE AMOUNT ADVANCED TO T.S. MAHALINGAM & SONS AS ON 31-3-2007 WAS ` 91 64 751/- ONLY. THE PARTNERS WERE ELIGIBLE TO WITHDREW MONEY FROM THE ASSESSEE FIRM A ND HENCE THE MONEY ADVANCED TO T.S. MAHALINGAM & SONS CAN BE TREATED A S PARTNERS WITHDRAWAL FROM THE ASSESSEE FIRM AND PARTNERS INVESTMENT IN M /S T.S. MAHALINGAM & SONS AS BOTH THE FIRMS HAVE SAME PARTNERS WITH SAME PROF IT SHARING RATIO. . 4. ACCORDING TO THE CIT(A) EXPLANATION OFFERED BY ASSESSEE REGARDING COMMERCIAL EXPEDIENCY OF THE TRANSACTION WAS NOT AC CEPTABLE. IN HIS OPINION IT WAS NOT PROPER FOR AN ASSESSEE TO TAKE SHELTER ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS V. CIT ( 288 ITR 1). HE CONFIRMED THE ORDER OF THE AO. 5. NOW BEFORE US LD. AR SUBMITTED THAT INSOFAR AS THE AMOUNT DUE FROM M/S TSM WAS CONCERNED IT WAS PURELY ARISING OUT OF TRANSACTIONS WHICH WERE FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSE E. ACCORDING TO HIM THE SAID FIRM WAS SELLING OLD CARS ON ITS BEHALF AN D FURTHER IT WAS UNDER THE SAME MANAGEMENT. ACCORDING TO ASSESSEE THE OLD CAR S WHICH WERE SOLD THROUGH THE SAID M/S TSM WERE KEPT AT THE PREMISES OWNED BY THE SAID ITA NO. 1645/MDS /10 4 FIRM. HENCE IT WAS IN ITS BUSINESS INTEREST THAT TH E ADVANCES WERE GIVEN TO M/S TSM. RELYING ON THE COPY OF THE LEDGER ACCOUNT OF M/S TSM IN THE BOOKS OF THE ASSESSEE LD. COUNSEL ARGUED THAT OPEN ING BALANCE DUE FROM M/S TSM WAS ` 90 41 371-75 AND THEREFORE THE TRANSACTIONS OVER T HE RELEVANT PERIOD HAD ONLY NEGLIGIBLE EFFECT ON THE O PENING BALANCE. ACCORDING TO HIM CLOSING BALANCE DUE FROM M/S TSM WAS ` 91 64 751-75 AND FURTHER ALL THE TRANSACTIONS WERE RELATABLE TO THE TRADE OF THE ASSESSEE. FURTHER ACCORDING TO HIM IT WAS ESSENTIAL THAT M/S TSM EFFECTED SALE OF OLD CARS FOR CONTINUOUS FLOW OF THE BUSINESS OF THE ASS ESSEE. HENCE IT WAS ARGUED THAT THE AMOUNTS GIVEN AS ADVANCES WERE COMM ERCIALLY EXPEDIENT IN THE BUSINESS OF THE ASSESSEE. IN SO FAR AS THE S UM OF ` 18 38 845/- SHOWN AS DUE TO M/S SBI LD. COUNSEL SUBMITTED THAT IT WAS BALANCE SHOWN AS DUE FROM M/S STATE BANK OF INDORE ON ACCOUNT OF RECONCILIATION AND THESE WERE RECONCILED IN THE SUCCEEDING YEAR AND SU BMITTED TO THE AO. ACCORDING TO HIM IT WAS IN NO WAY ANY DIVERSION OF FUNDS AT ALL. THUS IT WAS ARGUED THAT THE DISALLOWANCE MADE WAS TOTALLY UNWAR RANTED. 6. PER CONTRA LD. DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. INSOFAR AS THE SUM OF ` 91 64 751/- ALLEGED TO HAVE BEEN ADVANCED TO M/S TS M WE FIND THAT THE RELEVANT LEDGER PAGES PLACED BY TH E ASSESSEE AT PB PAGES 5 TO 6 CLEARLY SHOW THAT THE OPENING BALANCE ITSEL F WAS ` 90 41 371-75. ITA NO. 1645/MDS /10 5 THERE WERE A NUMBER OF TRANSACTIONS WITH THE SAID C ONCERN DURING THE RELEVANT PREVIOUS YEAR. IT HAS NOT BEEN CONTROVERTE D BY THE REVENUE THAT THE SAID M/S TSM TO WHOM ASSESSEE HAD ALLEGEDLY ADV ANCED THE AMOUNT WERE SELLING OLD CARS ON BEHALF OF THE ASSESSEE AND THEY WERE ALSO STOCKING OLD CARS IN THEIR PREMISES. IF THAT BE SO IN THE NATURE OF BUSINESS OF THE ASSESSEE WE CANNOT SAY THAT THE AMOUNTS ADV ANCED WERE FOR A NON-BUSINESS PURPOSE. IT WOULD HAVE BEEN ESSENTIAL FOR THE ASSESSEE TO SEE THAT THE BUSINESS OF M/S TSM WHO WERE SELLING O LD CARS ON ITS BEHALF WAS CONTINUING WITHOUT HITCH. IN THE NATURE OF BUSI NESS OF THE ASSESSEE WE CANNOT SAY THAT THE TRANSACTIONS IT HAD WITH M/S TS M WERE NOT COMMERCIALLY EXPEDIENT. ASSESSEE HAD GIVEN A CLEAR EXPLANATION IN THIS REGARD WHICH HAS NOT BEEN REBUTTED BY REVENUE. FURT HER IT ALSO COMES OUT THAT BOTH THE ASSESSEE FIRM AS WELL AS M/S TSM WER E HAVING THE SAME PARTNERS AND UNDER THE SAME MANAGEMENT. SO IT IS EQ UIVALENT TO A SUBSIDIARY OR A SISTER CONCERN. WE ARE THEREFORE O F THE OPINION THAT INTEREST DISALLOWANCE IN SO FAR AS IT RELATED TO THE SUM OF ` 91 64 751/- ADVANCED BY ASSESSEE TO M/S TSM WAS NOT CALLED FOR. THE INTERES T DISALLOWANCE TO THAT EXTENT STANDS DELETED. 8. COMING TO THE SECOND AMOUNT OF ` 18 38 845/- THE NARRATION GIVEN IS SB INDOOR. AS PER THE LD. AR NAME ACTUALLY WAS S TATE BANK OF INDORE AND THE AMOUNT SHOWN AS DUE FROM THEM WAS PROPERLY RECONCILED IN THE ITA NO. 1645/MDS /10 6 SUCCEEDING YEAR AND RELEVANT RECORDS PRODUCED BEFOR E THE AO. WE ARE OF THE OPINION THAT IF THIS VERSION IS TRUE THERE IS NO CASE OF DIVERSION OF FUNDS AT ALL. BUT NEVERTHELESS IT REQUIRES A REVISIT BY THE AO SINCE THE FACTS ARE NOT CLEARLY COMING OUT. HENCE INSOFAR AS THE SUM O F ` 18 38 845/- SHOWN AS SB INDOOR WE REMIT THE MATTER BACK TO THE FILE OF THE AO FOR CONSIDERATION AFRESH. IF THE ASSESSEE IS ABLE TO SH OW THAT THE ABOVE DUES ARE ARISING OUT OF RECONCILIATIONS WITH THE SAID BA NK AND NOT DUE TO FUND DIVERSION THEN OF COURSE THERE WOULD NOT BE ANY CA SE OF DISALLOWANCE OF ANY PRORATA INTEREST. 9. TO SUMMARISE WE HOLD THAT INTEREST DISALLOWANC E VIS-A-VIS THE SUM GIVEN BY THE ASSESSEE TO M/S TSM STAND DELETED AND INSOFAR AS THE SUM SHOWN AS DUE FROM SB INDOOR WE REMIT THE ISSUE BAC K TO THE AO FOR CONSIDERATION AFRESH. 10. IN THE RESULT APPEAL OF THE ASSESEEE IS ALLOWE D PROTANTO. ORDER PRONOUNCED IN OPEN COURT ON 28 -01-2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI: 28TH JANUARY 2011. NBR CC: ASSESSEE/ ASSESSING OFFICER/ CIT(A)/ CIT/ D .R/ GUARD FILE. ITA NO. 1645/MDS /10 7